June 1 (Bloomberg) -- U.S. job growth accelerated, consumers spent more and a measure of prices was little changed, showing the economy is recovering from its slowdown without a surge in inflation.

Payrolls increased last month by 157,000, more than economists predicted, after a gain of 80,000 in April, the Labor Department said today in Washington. The jobless rate stayed at 4.5 percent. The Commerce Department reported that personal spending rose 0.5 percent in April and the gauge of inflation most closely watched by the Federal Reserve rose 0.1 percent. Subsequent figures showed manufacturing grew at a faster pace and consumer confidence strengthened.

The numbers bolster the chances that interest rates will be left unchanged by the Fed, which is forecasting a rebound after the slowest expansion in more than four years. Treasury notes declined, the dollar rallied to a four-month high against the yen and stocks advanced.

``The economy appears to be gaining momentum,'' said Mark Vitner, an economist at Wachovia Corp. in Charlotte, North Carolina, whose firm accurately predicted the gain in spending. ``It's really a perfect world for the Fed right now. Consumer spending hasn't faltered and it's a very strong labor market.''

The Standard & Poor's 500 Index rose 0.4 percent to a record 1536.34. The yield on the Treasury's benchmark 10-year note rose to the highest in more than nine months.

Housing Recession

Housing, which has been in recession for more than a year, is far from a recovery. An index of pending sales of existing homes unexpectedly fell to the lowest level in more than four years in April, the National Association of Realtors said today in Washington.

``We knew we were going to have at least one bumpy quarter because of housing,'' Commerce Secretary Carlos Gutierrez said in an interview from Washington. Still, ``this is a resilient economy. We have been able to withstand a correction in the housing market.''

More jobs and bigger paychecks are crucial to sustaining consumer spending, which accounts for more than two-thirds of the economy, as house values stagnate and gasoline prices climb.

``As long as we are still creating jobs, the U.S. economy has a good outlook,'' said Ellen Zentner, an economist in New York at Bank of Tokyo-Mitsubishi UFJ Inc. ``Hands are tied for the Fed, they're going to stay on the sidelines for a while.''

The Reuters/University of Michigan's final index of consumer sentiment increased to 88.3 in May, from 87.1 in April. The reading compares with a preliminary May reading of 88.7.

ISM Index Advances

Manufacturing is picking up. The Institute for Supply Management's factory index rose to 55 in May, the highest in 13 months, from 54.7 in April.

The 0.1 percent gain in the Commerce Department's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, followed no change the prior month. The increase was less than the 0.2 percent gain forecast in the Bloomberg survey.

That left the inflation measure with a gain of 2.0 percent from April 2006, the smallest year-over-year increase since February 2006. Fed officials, including Chairman Ben S. Bernanke, have said they'd be comfortable with a 1 percent to 2 percent range.

Workers' average hourly earnings rose 6 cents, or 0.3 percent, after a 0.2 percent increase the previous month. Matching economists' median forecast. Earnings were up 3.8 percent from May of last year.

Service industries, which include banking, insurance, restaurants and retailers, added 176,000 workers last month after hiring 119,000 in April, the jobs report showed. Retailers lost 4,900 jobs in May after shedding 24,700 in April.

Builders

Payrolls at builders were unchanged after declining 21,000. Manufacturers' payrolls fell by 19,000 last month after dropping by 20,000 a month earlier. Economists expected factories to eliminate 15,000 positions. The manufacturing workweek fell to 41.0 hours from 41.1 hours and overtime fell to 4.1 hours from 4.2 hours.

Average weekly hours worked by production workers rose to 33.9 from 33.8. Economists in the Bloomberg survey had forecast hours would hold at 33.8.

Average weekly earnings rose to $586.47 last month from $582.71 in April.

The unemployment rate has ranged between 4.4 percent, the lowest in five years, and 4.6 percent since September.

Fed policy makers said last month that the job market was still ``relatively tight,'' according to minutes of their May 9 meeting, released this week. Wage growth still posed a ``significant'' risk to inflation, the Fed said. Fed officials also maintained forecasts of a pick-up in economic growth.

Workers Recalled

AMR Corp.'s American Airlines, the world's largest carrier, last month announced plans to recall as many as 200 laid-off flight attendants to fill jobs left vacant by retirements and other departures. The Fort Worth, Texas-based airline, which returned to profit in 2006 after five years of losses, has also recalled pilots and mechanics.

Microsoft Corp., the world's biggest software maker, said last month it will expand its Fargo, North Dakota, campus to add space for 575 workers. Microsoft is also in the middle of a $1 billion expansion to its Redmond, Washington headquarters to add space for an additional 12,000 employees.

Slower earnings growth at many companies may restrain hiring in coming months, economists said. First-quarter earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.2 percent. Profits were up 21 percent last year.

Job Cuts

Schaumburg, Illinois-based Motorola Inc., the world's second-biggest mobile-phone maker, said this week it will cut 4,000 jobs, the second round of firings this year, as it works to return to a profit.

There are also signs that the labor market may not have been as strong last year as earlier estimates suggested.

A report this month from the Labor Department, based on tax records from all businesses, showed the economy added 19,000 private-sector jobs in the third quarter. That contrasts with the government's monthly payroll figures, based on a smaller survey, which showed a gain of 498,000 jobs for the period.

The report showed declines in residential-construction jobs, and more losses may follow in coming months, economists said.

To contact the reporter on this story: Joe Richter in Washington Jrichter1@bloomberg.net

Last Updated: June 1, 2007 17:17 EDT